UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Litigation Release No. 17692 / August 21, 2002
Accounting and Auditing Release No. 1617
Securities and Exchange Commission v. Michael J. Kopper, Civil Action No. H-02-3127 (SDTX) (August 21, 2002)
SEC CHARGES A FORMER HIGH-RANKING ENRON OFFICIAL
Defendant Permanently Barred From Serving As Officer Or Director Of
Public Company; To Disgorge and Forfeit Approximately $12 Million
The Securities and Exchange Commission today charged Michael J. Kopper, a former high-ranking Enron official, with violating the antifraud provisions of the federal securities laws. Without admitting or denying the allegations of the Complaint, Kopper has agreed to be enjoined permanently from violating Section 10(b) of the Securities Exchange Act of 1934 and Exchange Act Rule 10b-5, and to be barred permanently from acting as an officer or director of a public company. As part of the settlement agreement, which is subject to the approval of the U.S. District Court, Kopper will disgorge and forfeit a total of approximately $12 million. The Commission brought this action in coordination with the Justice Department's Enron Task Force, which filed related criminal charges against Kopper. Kopper agreed to enter a guilty plea in connection with those charges and to cooperate with the government's continuing investigation.
As alleged in the Complaint, starting in at least early 1997, Kopper and others used complex structures, straw men, hidden payments, and secret loans to create the appearance that certain entities that Kopper and others at Enron funded and controlled were independent of Enron. This allowed Enron to move its interests in these entities off its balance sheet when, in fact, those interests should have been consolidated into Enron's financial statements. As a result, Enron's financial statements did not properly reflect Enron's interest in these entities, thereby enabling Enron to engage in various transactions with these entities that were designed to improve its apparent financial results. In addition, Kopper and others exploited the fiction that these entities were independent of Enron to misappropriate millions of dollars representing undisclosed fees and other illegal profits.
Specifically, the Commission's Complaint further alleges as follows:
- RADR: In early 1997, Enron needed to divest itself of certain electricity-generating windmill farms. Rather than seek independent third party investors, Kopper and others at Enron used entities (collectively referred to as "RADR") that they secretly funded and controlled to enable Enron to retain control over the windmill farms. Specifically, Enron's CFO made a personal loan to Kopper, who in turn made loans to certain individuals acting as nominee investors in the entities that purchased the windmills. Between August 1997 and July 2000, these entities generated approximately $2.7 million in distributions to Kopper and others. In July 2000, Enron repurchased the facilities from the entities, generating an additional gain of approximately of $1.8 million for Kopper and the others involved. Among those who received money were Enron's CFO, Kopper, several of their family members, and various Enron employees and their family members.
- Chewco: In 1993, Enron and the California Public Employees' Retirement System (CalPERS) entered into a joint venture investment partnership called Joint Energy Development Limited Partnership (JEDI). In November 1997, Kopper and others at Enron formed an entity called Chewco to buy out CalPERS' JEDI interest in order to maintain JEDI's off-balance-sheet status. However, Chewco failed to meet deconsolidation requirements because it did not have the third-party equity at risk required by the applicable accounting rules. From December 1997 through December 2000, Kopper received a total of approximately $1.5 million in "management fees," which he shared with Enron's CFO. In December 1998, Enron paid a $400,000 "nuisance fee," of which Kopper transferred approximately $67,224 to Enron's CFO. In March 2001, Enron bought Chewco's limited partnership interest in JEDI for $35 million, of which Kopper and his domestic partner received approximately $3 million. In September 2001, Enron paid $2.6 million "tax indemnity" to Chewco, which Kopper transferred into an account under his control.
- Southampton: Another entity formed by Enron was a partnership called LJM Cayman, L.P. LJM Cayman had two limited partners, Credit Suisse First Boston and National Westminster Bank (NatWest). In approximately February 2000, Kopper, three NatWest bankers, and others caused Enron to buy the NatWest's interest in the partnership assets for $20 million while paying NatWest only $1 million of that sum and siphoning the rest. As a result of this conduct, the three NatWest bankers who participated in the scheme received approximately $7.3 million. The balance of the funds went to Kopper ($4.5 million), a purported charitable foundation in the name of the CFO's family ($4.5 million), and five other individuals -- four of whom were Enron employees (amounts ranging from approximately $400,000 to $1 million).
The Commission's investigation is continuing.
SEC Complaint in this matter